Nic Carter is a financial researcher, investor, writer, and podcaster on topics of decentralized finance. Please support this podcast by checking out our sponsors:
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OUTLINE:
0:00 - Introduction
7:57 - Can humans fully understand reality?
10:26 - The dollar system
16:36 - Bitcoin
18:12 - Opendime
22:14 - Core values of Bitcoin
30:43 - Who is Satoshi Nakamoto?
36:31 - How Bitcoin works
44:54 - Bitcoin blocksize wars
57:19 - Layered scaling of Bitcoin
1:02:17 - Lightning network
1:05:17 - Schnorr/Taproot update to Bitcoin
1:10:10 - Criticisms of Bitcoin
1:19:56 - Bitcoin failure modes
1:27:59 - Bitcoin vs Ethereum
1:31:55 - Vitalik Buterin
1:34:49 - Creative destruction
1:39:43 - Future of Bitcoin
1:43:30 - Tesla, Elon Musk, and Dogecoin
1:51:36 - NFTs
1:58:52 - Bitcoin maximalism
2:05:29 - On writing
2:11:30 - Writing a book on Bitcoin
2:16:00 - Bitcoin resources
2:18:49 - Book recommendations
2:20:48 - Advice for young people
2:24:05 - Meaning of life

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The following is a conversation with Nick Carter, who is a partner at Castle Island Ventures, co-founder of CoinMetrics.io, and previously a crypto asset research analyst at Fidelity Investments.

He's a prominent writer, speaker, and podcaster on topics around decentralized finance and especially Bitcoin.

Quick mention of our sponsors, The Information, Athletic Greens, 4 Sigmatic and Blinkist.

Check them out in the description to support this podcast.

This conversation with Nick Carter is part of a series of episodes on cryptocurrency that is a small journey of exploration I'm on because I find decentralized finance and especially Bitcoin fascinating, technically and philosophically, especially because it may be the very mechanism that achieves a global decentralization of power, giving more sovereignty to the individual and making our systems more resilient to corruption, manipulation, and in general, to the darker sides of human nature.

Please let me also address something for a few minutes that happened recently that's been weighing heavy on me.

If you find me annoying to listen to, please skip to the actual conversation with Nick.

I had a recent podcast episode with Anthony Pompliano where we spoke about Bitcoin and life in general for 3 hours.

I was curious, inspired, positive, or at least I tried to be as I usually do.

Someone clipped out, out of context, a short segment of me mumbling something about having a PhD.

And I started getting mocked online, because that made it convenient for people to mock me for being yet another quote-unquote expert who learns about Bitcoin and thinks he knows everything.

I almost never mentioned that I have a PhD, except to make fun of myself, as I was doing, or at least trying to do, in the full context of the conversation.

I brought up Grad school as a random example of 1 of the many journeys I've taken that was hard, but where the destination was in itself not very useful.

I was saying I enjoy exploring with a curious mind and I'm willing to be patient, to learn, to listen, to humble myself with knowledge for the sake of knowledge itself.

I never call myself an expert, or at least try not to, because that would be dumb, because I know how little I know.

I'm not an influencer or a thought leader or whatever else silly self-aggrandizing label people put on their LinkedIn.

I try to be the opposite of what I was mocked for.

I tried to think deeply about the world, to look for the beautiful ideas in the minds of others and to be inspired by them.

I wanted to say all this because psychologically, it struck a bit of a blow.

It made me realize that even when I approach things with love, I may be mocked, I may be derided, I may be taken out of context or even lied about.

With the growing platform, this is sadly only increasing.

I now have learned that there's people who are waiting for my missteps so they can point the finger, laugh, and say, see, I told you so.

As a fellow human being, the knowledge of this is painful.

Yes, I know people tell me to toughen up and my life has been about strengthening my mind in the face of my limits, but I refuse to not be fragile and wear my heart on my sleeve.

In some sense, this is the immune system of the internet, But let us be careful not to destroy the good ones in the process.

The Bitcoin community had to endure many years of attacks from quote-unquote experts and also fraudulent cryptocurrency efforts that scammed people out of their money.

This created a powerful immune system that fought the attackers and the scammers.

I understand this and I also understand that 1 of the beautiful aspects of Bitcoin is its community of humans is decentralized but some small part of this community has come to enjoy the us versus them battles, sometimes for the sake of the battle in itself.

This happens in political discourse as well.

I understand this, but to my limited mind, it sounds like groupthink, which has powerful defense mechanisms against bad ideas, but has dangerous consequences if taken too far, as in many periods of human history that I often talk about, where the us versus them thinking has led to the suffering of many.

Again, I understand the value of this as many Bitcoiners explained to me, but it's not the way I, as a sovereign individual, choose to walk in this life.

By the way, none of this podcast should be treated as financial advice.

Before Nick kindly gifted me with $100 worth of Bitcoin in hardware form.

I'll probably buy some Bitcoin on Cash App, Coinbase, and other platforms, and also transfer to a hardware wallet just to learn how to do it.

But other than that, I don't necessarily make wise investment decisions.

Money is not a motivation for me personally.

I'm grateful for every day I'm alive, no matter how much money is in my bank account.

For long stretches of my life, that number was very close to 0.

And I was always fortunate to be free and happy.

So I encourage you to listen to people much smarter than me for actual good financial advice.

And as if this has not already gone on too long, let me please make another comment on the style of discourse among some Bitcoin maximalists on platforms like Twitter, that in my humble view, I may be wrong, but I believe is not conducive to the nuanced empathetic exchange of ideas I very much look for and enjoy.

Again, I appreciate their style of discourse.

I think I understand the value of it, but it's not my thing.

I want to hear the quiet voices in the room.

I look for people to inspire each other, and when we disagree, I look for disagreement that is grounded in respect and empathy.

I think that mockery and derision destroys the possibility of those nuanced conversations.

It drives away the quiet, thoughtful, empathetic voices.

And I try to give those voices space to be heard, to shine, to exchange ideas whether we agree or disagree.

So if I happen to block you on Twitter, I block you with love.

Honestly, I will never speak poorly of you or even think poorly of you.

I would love to hang out in person, give you a big old hug, and talk about life over some beers.

If you see or hear me say something stupid, which I'm sure I do often, or something you disagree with and you still respect me as a human being, please show your love as I always do to you, but also send me some links to blogs, books, videos, podcasts, where people describe why my stated idea may be totally wrong.

I love this kind of long form disagreement.

I humble myself every day by reading books and blogs by people much smarter than me.

Sometimes it strengthens my ideas, sometimes it totally changes them, but I always learn.

This is a too long way of saying that I'm here trying to walk with grace and with an open mind, a bit of patience, and always love.

This is the Lex Freeman Podcast, and here is my conversation with Nick Carter.

What philosopher or philosophical idea had a big impact on your life, not just in the space of cryptocurrency, but in general?

I didn't know what to do with my life, and my parents said, do whatever you find interesting.

And it had way more of an impact on my career actually than I thought it might.

Typically, I guess, if you do philosophy, you go into law or finance, so it sort of makes sense.

There are a number of philosophers I really admire.

1 of my favorites would be Descartes, probably the notion of skepticism.

It's kind of hard to pull yourself out of it.

Basically, the brain in the vat theory, pulling yourself out of that.

But yeah, I really like epistemology, you know, questioning what it is to have knowledge.

So Descartes was 1 of my gateways to that.

Like we humans can know fully the objective reality?

No, I mean, reality is very much processed through your own subjective lens.

So, how much do you think do we understand about this world?

Because a lot of your ideas, a lot of things we might talk about today are kind of trying to figure out human civilization, how humans, how human behavior works at scale, all those kinds of things.

That kind of assumes that we have it or we're able to somehow figure most of it out, right?

So in your sort of, when you step way back, how much of it have we really figured out?

Well, I think that's the conceit of economics is thinking that you can model human behavior in these unbelievably complex systems.

And then I think that's the modern critique of economics, like the sort of Talebian critique, is that you can't have true knowledge, and they're much less predictable than we think they are.

And we behave according to our accumulated assumptions, and we're using tiny sort of data sets trained on the last 50, 100 years, and they turn out to be horribly askew.

And that's when we have our gray swans and our black swans.

So I'm much more on the sort of, you know, reality is much less noble than we think side of things.

But it is nice to have very concrete things like Bitcoin, that's for sure.

Oh, so you think, so most of it is shaky ground, but there's some things, there's like islands of sturdiness.

Not to pivot this into the dollar right away, but.

It's the most, who truly understands the dollar system?

I mean, the totality of it, the Euro dollar system, the way that monetary policy interacts with the economy is monetary issuance Inflationary what's the relationship between unemployment and inflation?

Even policy makers don't understand these things, economists don't seem to understand them.

What is inflation, how do you define inflation?

None of these things are really known or knowable.

So a lot of people kind of make a claim that there's a lot of manipulation possible with the dollar, with those currencies.

If you couple that with the fact that people don't understand it, and yet there's claims that it's being manipulated by centralized power, how do you bring those 2 ideas together?

If no 1 understands it, how can you manipulate it?

I think what we don't understand are the long-term consequences of our structures, so like the Fed's mandate to target unemployment and steady exchange rates or low inflation.

What we don't understand is, okay, what is the result of doing that continuously for 40 years?

What is the consequence of the long-term accumulation of debt and basement interest rates?

What is the net effect of that on society?

We might understand there's much short-term features of the system, but I think it's the longer-term features we don't understand.

Do you think there's like malevolent people, people that don't have good intent in central banks, like in the system, you know, when you have centralized power in any forms, It's susceptible to somebody hacking the system, taking the power and in the shadows, this is where conspiracy theories come in, right?

In the shadows, be able to, you know, act out things that have a lot of negative impacts on a large percent of the population in greedy self-interest.

Do you think there's people like that, or do you think fundamentally most people are good, even those associated with the sort of central banking?

I think everyone is the hero of their own story, right?

So they all believe that they're a force for good in the world, you have to.

I think they get socialized into a world where they believe their particular skills and their mandate is what they should be doing.

I think they might be presumptuous or arrogant in some cases.

And I think it's more of a systemic issue where you have a small handful of very homogenous types of people with PhDs from the same institutions that are brought up in the same cultural context that set policy and wield a tremendous amount of control over society.

And I think they have this notion that you can tinker society, you can play with a few key variables and tinker society into a state that is desirable or good.

And I think the consequences of that can be pretty bad.

But no, I don't think it's born out of malevolence.

I think Michael Malis brought it up as a test whether you're on the left or the right.

The question he asks, which is, do you think some people are better than others?

If you say yes, he claims you're on the right.

If you start answering, if you start like saying a lot of things, like you're on the left.

So if you start explaining yourself, well, equivocating, yeah, it's a good term for it.

I was really, so in this test, I suppose I would be on the left because I'm uncomfortable with the idea that some people are better than others as a basic feeling, as a starting point in the way you think about the world because as we're talking about, everybody's a hero of their own story.

When you start to think some people are better than others as a starting axiom, it's like a slippery slope to where you think you're way better than others.

And then you start to like, basically, it's okay to take advantage of a large percent of the population for the greater good.

And then you go into Stalin mode and Hitler mode, where it's okay to murder a large part out of the population for the greater good.

So it's this very dangerous slippery slope of my mind.

So I try to not, yeah, I was always uncomfortable with that kind of test or even that kind of thought.

And yes, the same applies in suppose, in government, in central banking is, if you think some people are better than others, applying your idea of what is good can have large-scale detrimental effects.

I'm glad you didn't pose me the question.

I mean, I think maybe the left-right axiom isn't, the disjunction isn't the way I would sort of put it, but to me it's just, if you reason in a consequentialist way, that lends itself to authoritarianism, whereby you think you can shape society, and only you can shape society in a positive direction according to your specific objectives.

So let's step onto the land of sturdiness, that is Bitcoin.

What is Bitcoin and in your view, what are the principles, the philosophical foundations of Bitcoin.

ACW Well, Bitcoin, the term I think refers to 2 things specifically.

So, 1 is the protocol for conveying value through a communications channel.

So, just a set of rules that we collectively opt into in order to transact online or just at a distance.

And then the other thing is the name of the asset, the sort of monetary unit which circulates within the system.

And that always confused people a lot, because it's like, well, you've got uppercase Bitcoin, lowercase Bitcoin.

Why didn't Satoshi just give them different names?

Like in Ethereum, you've got Ethereum, the system, and then Ether.

Although people don't really talk about ether very much, but they, you know, chose to distinguish them.

In Bitcoin, for whatever reason, they're not distinct.

So the 2 bitcoins get commingled all the time in the explanations.

I mean, what's really a distinction between the protocol and the currency?

Well, they are sometimes distinguished practically.

Like, you can transact with Bitcoin outside of the Bitcoin protocol, for instance.

So, you know, you can transact with Bitcoin on Ethereum.

It wouldn't settle on the Bitcoin network.

Do you mind explaining what you have on the table before us?

This isn't a bribe, this is just a proof of concept.

So this is basically a Bitcoin bearer instrument.

So I put a hundred bucks of Bitcoin on here.

And to spend it, you have to basically physically destroy part of the device.

You have to poke a hole and you know poke off 1 of the little transistors on this.

So and you can't extract the private key from this device.

So the private key was generated on device, always stays on the device.

So what it means without breaking off a small part.

So this basically is a way to physically instantiate Bitcoin.

The point is, if you wanted to settle a Bitcoin transaction instantly, the kind of same way that a cash transaction is instant final settlement, right?

So if I was buying a house from you, you might prefer to do it with a physical bearer instrument as opposed to waiting for a confirmation on the Bitcoin blockchain.

So the moment I hand that over to you, goes in your possession, you're the owner, there's no way for me to have retained the private key.

Like, I could have created a Bitcoin paper wallet and given that to you, but you have no assurance that I didn't copy down the key elsewhere.

So this is a physical instantiation of the Bitcoin transaction outside the Bitcoin protocol.

So you're transacting the currency outside of the protocol.

So it's analog Bitcoin, we're rendering it analog.

Which I always liked, because Bitcoin is this immaterial thing, And so it's nice to have physical totems.

How much does it cost to manufacture this, do you know?

So this is just kind of almost like a philosophical statement versus something that's scalable for use.

The point of Bitcoin is to be in the digital space, right?

But this shows like, Bitcoin can be anywhere.

It's useful for gifts, but yeah, I mean, I don't know if it would be a suitable foundation for a physical Bitcoin economy.

In theory, these would be like cash-like instruments that you could use to transact.

But you still need to plug it into your laptop to actually verify that there's coins on there.

So I have to take your word for how much money is on here?

No, I mean, you can plug it into your laptop and check.

But to transact, to extract Bitcoin from this, I need to break.

to poke a hole through the little hole and that renders it spendable.

So that's protection against you spending it and then representing that it's still loaded.

So The other thing I brought here, basically dice, 12-sided.

So they just have a bunch of different critiques of Bitcoin on each side.

I don't know if we have time to do all 11 because there's 1 with my phone's logo on it.

But it's just basically a tongue-in-cheek joke that the critiques of Bitcoin are so formulaic at this point that you can just put them on dice.

Well, some of them might be topics for interesting conversations.

We could even arrange the conversation that way.

You can roll the dice and see what you get.

All right, but first, the philosophical foundations of Bitcoin.

Like how do you see Bitcoin outside of just a basic protocol and a basic currency?

It seems to be, like you said, it seems like sturdy ground, so what do you mean

Yeah, so it's not just any protocol for moving value around, It's not just any currency, it's got specific rules and values that are embedded in it.

And this is an important point, is that Bitcoin is the encoding of certain values, which are often misunderstood or not acknowledged necessarily.

And so it's sort of impregnated with values.

And what they are specifically is a topic of debate, and there have been civil wars fought over the values inherent in Bitcoin.

1 of them was, should Bitcoin be this cheap, scalable, the base layer, low-fee payment system with an emphasis on P2P payments, or should it be more of this gold-like digital commodity that would eventually settle infrequently and mainly between institutions.

So that's fundamentally a conflict of visions.

Keep in mind that this is just 1 man's opinion, I don't speak for Bitcoin.

I would say the key number 1 value that's embedded in Bitcoin is the notion of non-discretionary monetary policy.

So algorithmic monetary policy as opposed to human based monetary policy.

Bitcoin is an alternative to modern central banking, where you have constant tweaking, constant intervention, which Satoshi felt leads to credit bubbles and so on.

So Bitcoin proposes a completely non-discretionary monetary policy, sort of decays over time, 50% of the coins were issued in the first 4 years, and then the next

in the next 4 years, then 12.5% in the next 4 years, until you get to 21 million units.

It could have been 25 million units, and it could have been a more aggressive slope or a more gradual slope.

But what matters is that this schedule was proposed even before the code was public.

The schedule was proposed, and then we all collectively agreed to stick to it.

And that is kind of a first for monetary system.

I mean, gold kind of has that property, right?

Because the supply of gold above ground only really increases at

So it's sort of inhuman, which is a good feature, right?

You don't want to give humans that much control over it.

Bitcoin is a much more fastidious approach to that.

It really is super concrete about what the supply schedule is, and the fact, crucially, that it can't change.

A lot of people, let's say a lot of people had debts denominated in Bitcoin and we needed loose accommodative monetary policy to bail them out.

We couldn't have a Jubilee denominated in Bitcoin because the social contract that we've all bought into and committed to is that it's non-discretionary.

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Nic Carter: Bitcoin Core Values, Layered Scaling, and Blocksize Debates | Lex Fridman Podcast #173